Choose an appropriate platform to setup an ISA. Good examples are Vanguard, Fidelity, AJ Bell, Investec, HSBC Global Asset Management, Interactive Investor, Hargreaves Lansdown, BestInvest, etc.
Google their names and follow the links to open an ISA account.
Remember, you can pay into only one ISA account each year and you may not invest more than £20,000 per year.
JarInv recommends using Vanguard ISA www.vanguardinvestor.co.uk simply because they are the cost leaders in the marketplace and are the champions of index investing.
JarInv does not recommend St. James's Place (SJP) or Barclays Smart Investor because we believe their charges are uncompetitive and they do not have the right set of products for novice investors.
Different people manage risk in different ways.
When investing, you should accept that the risk level is higher than simply keeping cash in the bank. The returns of course are commensurate with the risks.
There are many freely available surveys in the Net that will tell you what your appetite for risk is.
When responding to these surveys ensure that you are brutally honest with yourself if you are to receive any meaningful feedback.
If your risk appetite turns out to be very low to none, then investing is probably not going to be a pleasant experience. However, if you have a moderate to high risk appetite, then sky's really the limit.
JarInv recommends that you choose a low cost, index tracker to start on your investment journey.
Choose something like a FTSE All Share Index (UK) or S&P500 Index (US) both of which have very low charges and fees.
If you are feeling a bit more ambitious then choose FTSE 250 Mid-cap Index OR Emerging Markets Index - both are slightly more risky but have potentially slightly higher returns.
Ensure that you setup a monthly direct debit with your chosen platform of the recommended £25 per month (or more).
Many experts warn you not to log in to your investment account too frequently. We do not agree.
JarInv believe that you should log in at least once a week if not more to check on the status of your investment.
A regular eye on your investment has a few advantages:
1. You are able to see how your investment fund or funds are performing at any time - you should use this just as information, you do not need to take any action based on what you see.
2. If your investment returns are positive it allows you to compare the return from the cash saved in your bank account.
3. Conversely, if your investment returns are negative then it is an opportunity to invest a bit more as you buy the fund at a lower price.
That is it!
Once you have experience of investing for a few months, then consider increasing the £25 to maybe £50 per month.
As you have bought a safer market index, your returns will be aligned to how the wider market performs.
Over time, you will see the gains will out-perform cash.
Ensure that you are not tempted to deal in individual shares or actively managed funds through any of these platforms.
As retail investors, we simply do not have the edge versus the professionals to beat them at their game.
We can try, but chances are high that we will lose every time!
Income funds are those that generate a cash flow based on dividends at regular intervals. The cash is then directly deposited in the Cash account of the ISA from where it can be withdrawn or re-invested.
Accumulation funds do not generate cash flow but the dividends are re-invested into the funds. Due to the effects of compounding, the unit price of an accumulation fund will usually be higher than that of an income fund even though the underlying index is the same.
It is usually more efficient to buy accumulation units than to re-invest the cash that is generated from income funds.
Investing is not complicated but the psychology around it can be quite tricky to manage.
Once you master the basics, it is your temperament that will be the primary determinant on future success.
JarInv will provide more details in the PSYCHOLOGY tab on behaviours that must be avoided in order to benefit most from investing.
Risk appetite varies by individual. However, to be successful in investing one must have a certain calmness of demeanour when the markets are choppy.
If you can see your portfolio lose up to 50% and not blink then you will do particularly well.
The more you are detached from the short term performance, the more edge you will have versus other participants in the market. As they say, anyone not aware of the fool in the market is the fool in the market.
We really do not recommend active funds. There are many reasons that we will explain all through the site but the key reasons are : higher costs, higher risks and higher probability of not identifying them enough in advance to profit from them when they do make the gains.
Beware of star fund managers - we will call to note the examples of Fidelity China Special Situations run by Anthony Bolton and CF Woodford run by Neil Woodford as typical examples of sub-par performances by super-star fund managers.
England, United Kingdom